Groom, E.L. v Abela, W.C
[1992] FCA 562
•06 AUGUST 1992
Re: ERIC LESLIE GROOM; BETTY LESLIE GROOM and ALAN BERNARD GROOM
And: WILLIAM CHARLES ABELA
No. Q G84 of 1992
FED No. 562
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Neaves(1), Spender(1) and Gummow(1) JJ.
CATCHWORDS
Bankruptcy - Bankruptcy notice - Appeal from dismissal of application to set aside bankruptcy notice on ground that amount of judgment debt overstated - Judgment debt for money due and payable to creditor upon sale of vessel - Payment secured by second mortgage over real property of debtors - Creditor obtaining possession of property pursuant to judicial order - Attempts to sell property unsuccessful - Finding of fact that value of property not sufficient to satisfy first mortgagee and costs of sale - Appeal dismissed.
HEARING
BRISBANE
#DATE 6:8:1992
Counsel for the appellants: Mr R.K. Woodhead
Solicitors for the appellants: Barker Gosling
Counsel for the respondent: Mr J. Sullivan
Solicitors for the respondent: Short Punch and Greatorix
ORDER
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellants pay the respondent's costs of the appeal.
3. In the event that a sequestration order is made against the appellants founded on the bankruptcy notice issued on 24 April 1992, any part of the respondent's costs of the appeal which then remains unpaid is to be treated as if that part were costs of the petitioning creditor.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
On 6 August 1992 the Court dismissed an appeal by Eric Leslie Groom, Betty Leslie Groom and Alan Bernard Groom ("the appellants") from the judgment of a single judge of the Court (Cooper J.) given on 21 May 1992 dismissing an application by the appellants that a bankruptcy notice addressed to them that was issued by a Deputy Registrar in Bankruptcy on 24 April 1992 upon an application made in that behalf by William Charles Abela ("the respondent") be set aside. The Court further ordered that the appellants pay the respondent's costs of the appeal and that, in the event that a sequestration order is made against the appellants founded upon the bankruptcy notice, any part of those costs which then remains unpaid is to be treated as if that part were costs of the petitioning creditor. The Court then said that it would give reasons for judgment at a later date. What follows are those reasons.
The bankruptcy notice required the appellants, within 21 days after the service of the notice upon them, excluding the day of such service, to pay to the respondent the sum of $201,737.70 or to secure the payment of that sum to the satisfaction of this Court or other court exercising federal jurisdiction in bankruptcy or the respondent or to compound that sum to the satisfaction of the respondent. The notice was founded on a final judgment obtained by the respondent against the appellants on 19 July 1990 in a proceeding in the Supreme Court of Queensland numbered 1748 of 1990. In that proceeding judgment was entered for the respondent against the appellants in the sum of $219,363.60. That sum represented the balance of the unpaid purchase price, plus interest, in respect of the sale in or about September 1988 of a vessel known as "Keno Runner" by the respondent to the appellants Eric Leslie Groom and Betty Leslie Groom. The payment of those moneys was secured to the respondent by a bill of sale over the vessel, by a guarantee and indemnity given by the appellant Alan Bernard Groom and by second mortgages over certain land.
The two parcels of land over which the respondent held second mortgages are respectively described as Lot 2 on Registered Plan No.87875, County of Stanley, Parish of Cleveland and Lot 2 on Registered Plan No.169496, County of Stanley, Parish of Cleveland. The registered proprietors as joint tenants of the first parcel were the appellants Eric Leslie Groom and Betty Leslie Groom. The three appellants were the registered proprietors as joint tenants of the second parcel. The first parcel was a house property, the second vacant land. Over each parcel of land the National Australia Bank held a first mortgage.
On 18 October 1991, the appellant, after complying with the necessary statutory and other requirements, obtained in the Supreme Court of Queensland in a proceeding numbered 1733 of 1991 an order for the recovery of possession of each of the parcels of land, the order requiring that vacant possession be given to the respondent on or before 2 December 1991 or such other date as the Court might order. A writ of possession was issued by the Supreme Court and executed by the appropriate officer of that Court.
Steps were subsequently taken to sell the two parcels of land by auction but without success, no bid being received of a sufficient amount to pay out the indebtedness to the National Australia Bank ("the bank") under its first mortgages and provide for the costs of sale. On 26 February 1992, however, the parcel of vacant land was sold by private treaty for the sum of $85,000.00. At settlement, an amount of $61,893.12 was paid to the bank and, after the making of all proper adjustments and the payment of the costs of sale, the respondent received $17,625.90. Credit for that sum was given in the bankruptcy notice, reducing the amount of the judgment debt ($219,363.60) to the amount claimed in the notice ($201,737.70). Further efforts to sell the house property have been made but that property remains unsold. Further details of the efforts made to sell the properties are referred to in the judgment appealed from and need not here be repeated.
As already mentioned, the bankruptcy notice addressed to the appellants was issued on 24 April 1992.
On 18 May 1992, the appellants gave notice to the respondent, pursuant to s.41(5) of the Bankruptcy Act 1966 (Cth), that they disputed the validity of the bankruptcy notice "on the ground that the amount claimed therein is overstated". On the same date the appellants filed the application which resulted in the judgment from which the present appeal is brought.
By virtue of s.40(1)(g) of the Bankruptcy Act, a debtor commits an act of bankruptcy if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice and the debtor does not comply with the requirements of the notice or satisfy the Court that he has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he could not have set up in the action or proceeding in which the judgment or order was obtained. A bankruptcy notice is to be in accordance with the prescribed form (s.41(1)), such prescribed form to be such that the notice requires the debtor named in it, within a specified time, to pay the judgment debt or sum ordered to be paid in accordance with the judgment or order or to secure the payment of, or compound, the debt or sum and states the consequences of non-compliance with the requirements of the notice (s.41(2)).
A bankruptcy notice may be invalid if the amount specified in the notice as the amount due to the creditor exceeds the amount in fact due. Section 41(5) of the Bankruptcy Act, however, provides:
"(5) A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he disputes the validity of the notice on the ground of the misstatement."
As has already been mentioned, the appellants gave notice to the respondent pursuant to that provision.
The date as at which the inquiry whether the amount specified in the notice is excessive is to be made is the date of the issue of the notice: Walsh v. Deputy Commissioner of Taxation (1984) 156 CLR 337. In that case, Gibbs C.J., in whose judgment the other members of the Court agreed, said at p 340:
"In form the notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the notice must be understood as speaking as at the date of its issue and the requirement of the notice, for the purposes of s.40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue."
It is necessary that the person at whose instance the bankruptcy notice is issued be in a position to issue execution on the judgment or order at the time of the issue of the notice and at the time of its service: Re Williams; Ex parte General Credits Ltd (1983) 68 FLR 202 at pp 206-7: Re Solomon; Ex parte Reid (1986) 10 FCR 423 at pp 425-6: Penning v. Steel Tube Supplies Pty Ltd (1988) 80 ALR 689 at pp 700-2.
The basis upon which it is said that the sum specified in the bankruptcy notice as the amount due to the respondent exceeds the amount in fact due is set out in par.7 of the affidavit of the appellant Betty Leslie Groom sworn on 18 May 1992. That paragraph reads:
"7. I verily believe that the amount claimed by William Charles Abela has been mis-stated as the value of the property described as Lot 2 on Registered Plan No.87875, County of Stanley, Parish of Cleveland exceeds the amount of all other mortgages on the property save for mortgage number J675614D."
The reference to mortgage number J675614D is a reference to the second mortgage in favour of the respondent over the house property. Before the trial judge, and again before us, it was submitted on behalf of the appellants that the evidence establishes that the house property has a value beyond whatever may be owing to the bank and that that value, whatever it might be, must be credited against the balance of the judgment debt of $201,737.70 claimed in the bankruptcy notice. The notice is, therefore, said to overstate the amount in fact due by the appellants to the respondent.
The trial judge rejected the submission on two principal grounds, one of law and one of fact. His Honour held, as a matter of law, that the mere holding by a judgment creditor of a security which may, upon realisation, produce a surplus which will at that time reduce the judgment debt, does not preclude the creditor from having a bankruptcy notice issued in respect of the amount payable under the judgment at the date of the issue of the notice. We are satisfied that that is a correct statement of the law: see In re Renison; Ex parte Greaves (1913) 2 KB 300 at pp 302, 303. The mere existence of such a security does not preclude the creditor from issuing execution upon the judgment. Nor is the position different in a case such as this where the creditor has, before the issue of the bankruptcy notice, taken possession of the property by exercising his powers as mortgagee but the exercise of that power has not resulted in any moneys being received by him or being held beneficially on his behalf: cf. Re Scott; Ex parte Scott (1921) 38 WN (N.S.W.) 72: Re Taylor; Ex parte Taylor v. Bill Acceptance Corporation Ltd (1985) 8 FCR 568.
His Honour also made a finding of fact which is fatal to the appellants' claim. His Honour said:
"In any event, I am not satisfied that there is at this time sufficient value in the house property to generate a surplus after the payment out of the bank. All of the evidence as to the considerable efforts taken to sell the property to best advantage demonstrates that it is highly unlikely that a surplus can be achieved at this time. This is particularly so as the bank debt is increasing by the addition of capitalised interest. The belief of the deponent, Ms (Betty) Leslie Groom, unsupported by valuation evidence, does not persuade me that the property is readily saleable at a figure beyond the bank debt."
Nothing that has been put to us provides any basis for departing from his Honour's finding.
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